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Consumption

World Cup euphoria has little impact on business

A wave of euphoria has been sweeping across Germany following their World Cup victory. Economists and business executives are also caught up in it. But not every connection drawn between sports and business makes sense.

It is no big surprise that German sportswear maker Adidas is selling a lot of football shirts following Germany's World Cup victory. It is also possible that the World Cup could boost sales of shower gel and tissues if these products are advertized alongside this huge sports event. But Adidas shares have yielded by 20 percent since the beginning of the year, and Germany's DAX did not show any major leaps after the final in Rio.

And yet some German media outlets are trying to draw a connection between the World Cup victory and the overall situation of an entire nation or at least the economy. Germany's business daily Handelsblatt had a story titled "Role model Germany" and Der Spiegel magazine cover read "Wir sind wieder…wer?" - an alteration of the German saying "We're somebody again" adding the periods and question mark so as to turn the statement into a question about who we [the Germans] are.

A wave of excitement

Business executives like Volkswagen CEO Martin Winterkorn say the team spirit shown by the German football squad is also the key to success in other areas: "Together we are stronger than alone - every company should subscribe to this message." And a Handelsblatt journalist says: "A wave of excitement is sweeping across Germany, and it didn't even need a German president giving a speech to trigger it."

However, it is difficult to describe this "wave" or indeed ascertain its effect on the economy. "If people believe that things are looking up, this can have a positive impact on the overall business mood. It creates a self-amplifying effect," says Armin Falk, economics professor at Bonn University.

In 2006, during Germany's World Cup "Sommermärchen" or summer fairytale, Falk surveyed more than 3,000 German citizens regarding their economic situation and expectations. Parallel to the successful performance of the German team, which came third in the end, the survey's values also improved. However, the effect was vague and could not be measured accurately in terms of numbers, says Falk.

Madrid mass demonstration against austerity measures

In 2012, Spaniards demonstrated against austerity measures - the same year they won the European Cup.

Negative example of Spain

Spain, whose football team won both the World Cup in 2010 and the European Cup in 2008 and 2012, was unable to profit from this football supremacy when it came to the economy. On the contrary: the Spanish economy has nosedived since then, with unemployment hitting record levels.

However, it is just as wrong to deduct that the World Cup had an adverse effect on the Spanish economy as it is to say that Germany's victory will boost business. "Drawing such connections gives you pseudo-correlations," says Holger Bahr, an economist with Dekabank. "This means that certain things may happen at the same time but they don't have any causal connection."

Overrated euphoria

"The actual economic factors are rather limited for all those not hosting the World Cup - leaving aside ice cream and beer consumption or the sales of football shirts," says Bahr. He is also skeptical about the conviction that winning the World Cup creates a nationwide wave of positive energy with a subsequent favorable economic impact.

As exciting as this football success may be, the income expectations of private households and the investment plans of companies are not affected by it. "When we look at our pay slip at the beginning of August, we will see pretty much the same as in July. Companies investing and looking for future customers will also see that the world has not really changed," says Bahr.

Gert Wagner of the German Institute for Economic Research (DIW) in Berlin has a similar view. "So far there has been no empirical proof regarding economic welfare benefits. One shouldn't overrate the euphoria effect."

Wrong forecasts

Gert Wagner of DIW Berlin

Gert Wagner warns not to overrate the euphoria factor

The German government is also cautious after the team's World Cup victory, that is, at least with regard to economic forecasts. "We are sticking with our predictions for the time being," says a spokesperson of Germany's Economy Ministry. And German market researcher GFK does not see the football euphoria having any major impact on consumer behavior.

Dekabank economist Bahr is not surprised by this, but he also says it is not important because the German economy is also doing well without football. "We have very low unemployment rates and an enviably strong labor market. Given this backdrop, we don't need to be pulled out of the doldrums."

So, football is not really suited to revive a country's economy. And the mathematical models used by Holger Bahr, Gerd Wagner and other economists ahead of the World Cup to determine the winner are not infallible either. The calculations of Bahr's team at Dekabank saw Brazil taking the trophy. Wagner and his colleagues calculated the market value of the competing teams' players. Their money was on Spain.

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